Its Official – Money Can Buy Happiness

“Money is better
than poverty, if only for financial reasons.” – Woody Allen

It’s official
– money can buy happiness.

Two researchers
at the University of Warwick, Andrew
Oswald and Jonathan
Gardner, followed 9,000 people over 8 years and asked them to assess
their own degree of “happiness” by having them fill out a survey. (Actually
they just used the British Household Panel Survey which administers a General
Health Questionnaire (GHQ) see below). Among the people
that they followed, many came into a windfall of money – either through
lottery winnings, or an inheritance.

Using this longitudinal
survey data, the researchers were able to compare people before and after
the windfall and see if they were any happier than before. What they found
was, surprise, surprise, that the level of happiness increased when a person
comes into a large sum of money. In addition, the level of stress decreased
for those people as well.

Using the estimates
from the study, we can actually find out how much it would take to make
an unhappy person happy (at least on average). The study suggests that
it takes approximately $1.5 million to move someone from the unhappy part
of the population to the more happy part.

Specifically,
the authors estimate that a windfall of $75,000 dollars (actually 50,000
pounds – the study was performed in the UK) improves mental well-being by
between 0.1 and 0.3 standard deviations in the year following the windfall.
The $1.5 million brings someone from the bottom 2% to the top 2%.

Lasting effects?

The study found
that the gains in self reported happiness occur in the year following the
windfall. However, left open is the question of whether the effect is persistent.
It may very well be the case that the increase in wealth has a one-time
effect and people return to their previous level of happiness.

Perhaps after
a few more years of following the study participants, we’ll know the answer.